Finance

Spot ETPs: A New Era For Bitcoin Or A Gateway For Traditional Finance?

Published

12 months ago

January 12, 2024

Spot ETPs: A New Era For Bitcoin Or A Gateway For Traditional Finance?

On January 10, 2024, the crypto industry witnessed a notable development. The U.S. Securities and Exchange Commission (SEC) approved the listing and trading of several spot Bitcoin
BTC
exchange-traded product (ETP) shares. This decision raises critical questions about the SEC’s evolving stance on crypto assets. Is this a genuine shift in their attitude towards crypto assets, or is it merely a strategic move favouring traditional financial institutions? It appears that by approving these specific ETPs, the SEC might be selectively opening doors for established banks to carve out their preferred segments in the crypto market. This could potentially sideline innovative startups, who have invested decades in building this industry and letting the more traditional players in the financial sector take the frosting from the cake.

Photo by Muhammad Asyfaul, Unsplash

A bit of history

The SEC categorises most crypto assets as investment contracts, making them subject to U.S. securities laws. Consequently, issuing crypto assets requires compliance with significant regulatory requirements, a hurdle too high for many start-ups and even established companies in the crypto industry. It is crucial to acknowledge the presence of numerous fraudsters in the crypto market, and thus, the need for the SEC to become more diligent and strict. However that being said, it is important to emphasize that every novel sector invariably draws in those looking to exploit its nascent state for illicit gain. This pattern is not new; even the securities market, now well-regulated, took decades to establish robust regulations. This lengthy process of regulation and oversight development is a common trajectory for emerging industries as they balance innovation with the need to deter and manage fraudulent activities.

However, one must question the fairness of a regulatory approach that permits established industries to take over an emerging sector, just right before it becomes truly viable.

Introducing Bitcoin ETF and ETP

According to Coindesk, Bitcoin ETFs are publicly traded investment funds that allow investors to invest in Bitcoin without owning the actual crypto asset. This setup frees the investors from dealing directly with the crypto regulation. The ETFs are traded on traditional securities exchanges, and investors buy shares in a fund that holds Bitcoin. While there have been many attempts to launch crypto-linked ETFs since 2014, the first U.S. Bitcoin ETF (BITO) began trading on October 19, 2021. ProShares, a well-known ETF issuer, was allowed by the SEC to create this fund. The fund debuted as one of the most heavily traded ETFs in market history, attracting more than $1 billion in assets within its first days.

In January 2024, the BITO reached its all high of over $2 billion assets.

Although the SEC approved a few Bitcoin ETFs, in 2023, it rejected the applications to list spot Bitcoin exchange-traded product (ETP). The main difference between the two is that the Bitcoin spot ETP invests directly in Bitcoins as an underlying asset, whereas the Bitcoin futures ETFs invest in derivatives contracts based on Bitcoin prices.

One could ask – what is the difference between the Bitcoin spot ETP and owning the Bitcoin directly? On a very basic level, the first is regulated and in the majority of cases, managed by established financial entities, and the other is not, while the underlying asset is the same – Bitcoin.

Allowing for the Bitcoin spot ETP

The first application for Bitcoin spot ETP was filed with the SEC on July 1, 2013, by the Winklevoss brothers. Since then, multiple applications have been filed under the federal securities regulation, all rejected by the SEC on grounds of anti-fraud and investor protection. Meanwhile, the SEC permitted derivative products – the Bitcoin ETFs, creating a noticeable double standard. This inconsistency was finally challenged by Grayscale Investments, LLC in 2022. On August 29, 2023, the DC Circuit Court of Appeals ruled this double treatment as “arbitrary and capricious,” criticizing the SEC for failing to “ explain its different treatment of similar products.”

The SEC did not appeal this decision and instead initiated a review of 11 applications for Bitcoin spot ETPs.

What does this mean?

The SEC approved 11 applications for spot Bitcoin ETPs, and entities such as Blakcrock, Grayscale, Fidelity, VanEck, ARK 21Shares and others, allowing them to invest in Bitcoin and create derivative products for retail investors. This decision culminated in a significant trading volume of $4.6 billion – on the first day of trading – January 11, 2024, indicating a strong market interest.

This situation underscores the need for the SEC to rethink its approach to regulating crypto assets. The current stance is somewhat paradoxical. The SEC imposes strict limitations on primary crypto activities and innovative start-ups, often suggesting a view of crypto activities as potentially fraudulent. Yet, simultaneously, it facilitates secondary trading through established financial institutions. This implies that only a select few are deemed capable of safely engaging in the crypto market.

The SEC’s approach of creating space for traditional financial entities in the crypto space while tightly constraining grassroots crypto activities points to an unusual standard of operation that may need reevaluation to ensure a more balanced and inclusive market.

Related Topics:Bitcoin Bitcoin ETFs BITO ETP SEC

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Finance

How to have ‘the talk’ with aging parents about money

Published

1 hour ago

January 5, 2025

Press Room

How to have ‘the talk’ with aging parents about money

Listen and subscribe to Decoding Retirement on Apple Podcasts, Spotify, or wherever you find your favorite podcasts.

Talking about money with one’s parents isn’t usually an appealing encounter — but as more millennials and Gen Zers find themselves with aging parents, these discussions are becoming increasingly important.

“The talk” about an aging parent’s finances and end-of-life plans can be the key to ensuring long-term generational wealth — especially since most wealth doesn’t last longer than three generations, according to Dr. Lazetta Braxton, founder of Lazetta & Associates and the Real Wealth Coterie.

“When you don’t have the benefit of having substantial wealth that is taking care of multiple generations … you have to disclose about where everybody is, because if you don’t know, then the risk of the unknown can be catastrophic,” Braxton explained on Yahoo Finance’s Decoding Retirement podcast (see video above or listen below).

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Financial discussions have long been considered taboo, especially for older generations. That’s why younger generations often find themselves responsible for initiating these sensitive conversations.

Instead of approaching “the talk” as one tell-all discussion, Braxton encouraged people to think about it as a “series of conversations.”

“It’s not interrogating a parent,” Braxton said. “It’s giving them the opportunity to be proud of what they’ve done, even if they haven’t done all the things they really had desired to along the way.”

Sara Stein and Lee Stein, left, talk with Bob Millhauser as they wait for Abby Millhauser to join them for dinner in the Millhausers’ 940 sq. ft. accessory dwelling unit on April 19, 2024, in Raleigh, North Carolina. (Robert Willett/The News & Observer/Tribune News Service via Getty Images) · Raleigh News & Observer via Getty Images

For starters, she recommended that younger generations consider how uplifting the environment is before initiating a conversation with their parents.

Often, details about an elder’s power of attorney for healthcare and assets aren’t discussed until a major life event or crisis occurs, which can make financial discussions strenuous.

Instead, it’s best to start these conversations with lower stakes, Braxton said. She warned that approaching the discussion during a high-stress time “could reset the conversation for decades.”

It also may be helpful to have a third party, such as a financial planner, present when discussing more gritty details, as they can provide the facts and act as a neutral player in the conversation, Braxton said. Having a professional be a part of some of these conversations can also help define and outline some of the more confusing terms a person may not know going into the conversation.

“It’s so important in terms of building relationships … [to] know the trigger points and the glimmer points,” Braxton explained. “The trigger points … [shut] a family member down and the glimmer points … [give] them comfort and trust to say it is safe to talk about these conversations.”

Finance

Role of capital markets for raising green and transition finance

Published

9 hours ago

January 5, 2025

Press Room

Role of capital markets for raising green and transition finance

Jan 05, 2025 09:01 AM IST

This article is authored by Ajay Tyagi and Rachana Baid, ORF.

The climate crisis is a global commons problem requiring concerted actions by all. While recognising this, the United Nations Framework Convention on Climate Change has also acknowledged the principle of ‘common but differentiated responsibilities and respective capabilities,’ which assigns greater responsibilities to developed countries in mitigating greenhouse gas (GHG) emissions and reducing their carbon footprint. There have also been deliberations at successive meetings of the Conference of the Parties (COP) on developed countries providing financial and technical support to developing states. Despite commitments, however, developed countries have failed to transfer any significant amounts to the developing countries. Such delays have only worsened the situation, amid the increasing incidence and intensity of extreme weather conditions and natural calamities worldwide. Developing countries are more vulnerable to the massive consequences of these events and face an uphill task in arranging funding to finance their climate mitigation and adaptation requirements.

Green finance(Pixabay)

India is a vast country with a 1.4-billion population, a per capita income of approximately $2,500 per annum, and significant income disparity. India is also among the countries most affected by extreme weather events. Although India’s per capita annual GHG emission in 2021 was only 1.6 carbon dioxide equivalent (CO2e) metric tons as compared to, say, the 13.8 CO2e metric tonnes of the United States (US), China’s 7.5 CO2e metric tonnes, and the global average of 4.3 CO2e metric tonnes, it was the third largest incremental annual emitter of GHG in the world that year.

India has outlined ambitious targets to contain climate change impacts and meet its nationally determined contributions under the Paris Climate Agreement. These targets should also help the country achieve the Sustainable Development Goals by 2030, besides fulfilling its net-zero GHG emissions commitment by 2070—even as it aspires to become a developed country by 2047. Given its geographical size, population and diversity, however, India faces unique obstacles to these targets. For instance, over 75% of its districts (home to 638 million people) are categorised as hotspots for extreme climate events.  The climate financing strategies have to be appropriately mainstreamed in the overall development model.

This paper can be accessed here.

This paper is authored by Ajay Tyagi and Rachana Baid, ORF.

Finance

I’m a financial planner — this is the one simple money habit you need to break in 2025

Published

19 hours ago

January 4, 2025

Press Room

I’m a financial planner — this is the one simple money habit you need to break in 2025

New year, new habits.

Shannon McLay, the CEO of financial planning service The Financial Gym, is shaeing the one spending habit that people should break in 2025.

Emphasizing “mindfulness,” the money guru says it’s time to delete easy payment apps off your smartphone, which allow you to make thoughtless purchases with just the click of a button.

“I always say we work really hard for every dollar that we make, so we need to make it hard to spend those dollars because it’s hard to get it in the bank,” she told TheStreet.

“But it’s so easy for us to spend money we spend on our phones. We spend it with credit cards on apps, and we don’t realize where it’s going.”

McLay says financial experts “hear all the time” that their clients have “no idea” where their money is going, with many saying they “make it and then it’s gone.”

She encourages people to be mindful of their money, even though it’s often anxiety-inducing.

“We see people who look to us very financially healthy and are feeling anxiety,” she said. “And when we feel anxiety about an area, we avoid it. We don’t want to dig into the thing that’s creating anxiety.”

As a result, people are “not going to look at” where their income is going.

One study last year found that 73% of Americans are stressed about their finances.

“So that’s one of the first steps we’ll say is being mindful of where your money is going and whether it’s tracking your expenses via an app or even just manually tracking it in the Notes app on your phone,” McLay advised.

“That process of paying attention where your money is going is really a good first step.”

Gen Z has also ushered in another financially savvy trends — “loud budgeting,” or being transparent about finances.

“They are saying there is no shame and guilt in their financial situation,” financial expert Julie O’Brien, the senior vice president and head of behavioral science at U.S. Bank, previously told Money.

“They are just saying, out loud, that healthy management of their money is something they value more than consumption and the curated, unrealistic ideals they see portrayed.”